From left, Courtney Davis, Michael Root, Judy Sarkozy, Chris VanDenBerg and Nate Haroldson talk at the MLive/Kalamazoo Gazette Hub about the new plans for Sarkozy Bakery. All five will now be co-owners.MLive file

A 13-page action filed in Kalamazoo County Circuit Court by Sarkozy and her attorney, Samuel T. Field, says Hanover Insurance Company, of Howell, issued a policy to Sarkozy in March 2011 that provided $330,924 in replacement costs for her former bakery located at 335 N. Burdick St.

It wasn’t until after the bakery was destroyed in a Feb. 25, 2012, fire, that Sarkozy learned the “actual cost to replace (the bakery) was an amount in excess of $1,000,000,” according to the lawsuit.

“These amounts were and are grossly inadequate to cover the cost to replace Plaintiff’s premises,” according to Sarkozy’s lawsuit, which was filed in April and names Hanover, Citizens Insurance Company of America and HUB International Midwest Limited as defendants.

Field said misrepresentations by the insurance entities and the resulting payout cemented that Sarkozy would not be able to rebuild and reopen her bakery at its original location.

“It wasn’t an option,” Field said. “That made the decision for her.”

Sarkozy said in April that her bakery could be reopened as soon as August in its new location, a 4,000-square-foot space in the Columbia Plaza building at 350 E. Michigan Ave.

Sarkozy said that a $270,000 loan package from Keystone Bank, the Small Business Administration and the city of Kalamazoo, along with insurance money, funds raised from the Raising Dough Campaign and investment by partners at Columbia Plaza would pay for renovations at the new location.

Field said Sarkozy, as of Wednesday, is still aiming for an August opening at the Columbia Plaza building.

Sarkozy’s suit says the replacement costs that were outlined in her 2011 policy “was the result of a mutual mistake” by her and Hanover, and the action seeks for Circuit Judge J. Richardson Johnson to issue an order for Hanover to reconfigure the policy and issue a payment to Sarkozy that covers the full replacement cost of the bakery.

The lawsuit says Hanover already issued a check to Sarkozy in April 2012 for $232,930. That amount was minus a $25,000 advance payment she received after the fire and a payment of $85,976 for a “fire insurance withholding escrow payment to the City of Kalamazoo.”

“It really is sad,” Field said Wednesday. “She is one of the truly great characters of Kalamazoo, I think, and it’s just tragic. She had this nice business and she was the anchor of the North (Kalamazoo) Mall and doing everything right.

“ ... It’s pretty discouraging. This is a case that I can get self-righteous.”

Hanover and Citizens Insurance had not filed an answer to Sarkozy’s complaint, as of Monday.

However, in an answer filed May 13, HUB International officials denied all of Sarkozy’s claims and said that Sarkozy was not misled by the company.

Among the claims in Sarkozy’s lawsuit are that she worked with a local insurance agent after she purchased the bakery in the 1980s and, at some point, the local agent’s business was acquired by HUB International.

After the acquisition, Sarkozy met with a HUB insurance agency “to review her insurance needs and bring all of her coverages up to date,” according to the lawsuit.

The action goes on to say that each year after her meeting with the HUB agent, the coverage limits for building loss were increased and periodically, when it came time for the policy to be renewed, “defendants Hanover, Citizens, and/or HUB added or deleted from the coverages provided by the existing policy without consulting (Sarkozy).”

The lawsuit also says that in December 2011, Sarkozy received a letter from the insurance companies asking if there had been any changes in the nature of Sarkozy’s business and if she wanted to pursue higher liability amounts for her business.

Field said he feels the letter is significant to the case because it left Sarkozy with the impression that she could control the coverage amounts on liability insurance – which is different than insurance for building replacement – while the rest of the amounts like building replacement estimates were set by the insurance company.

“At the time of the re-issuance of said Policy on March 3, 2011, defendants Hanover and Citizens represented to Plaintiff that the cost to replace her premises was $330,924 by increasing the replacement cost limits from the prior year’s limit,” the lawsuit says.

“ ... (Sarkozy) would not have entered into a contract with a replacement cost limit of $330,924 if defendants had not make said representation and would have insisted that the replacement cost limit be an amount adequate to replace said premises.”

Field said the lawsuit is in its beginning stages and that he is hoping to get more answers through discovery. He said one key question he hopes to answer is whether it was the insurance companies – Hanover and Citizens – or the insurance agency – HUB – set the replacement cost for the bakery.

“We’re not sure whether it was the agent or the insurance company who came up with the replacement figure,” Field said. “What we’re sure of is it wasn’t Judy.”